The Best Way to Lose $5 Billion Dollars

What NOT to Do to Stay Rich, Courtesy of House Vanderbilt

It was January 4, 1877 and the world’s richest man had just died. Cornelius “The Commodore” Vanderbilt had amassed a fortune of over $100 million over the course of his lifetime as a railroad/transportation pioneer. The Commodore was of the belief that splitting the family fortune would lead to ruin, so he left a majority of his wealth ($95 million) to his son William H. Vanderbilt. At the time of this bequest, $95 million was more money than was held in the entire U.S. Treasury.

The Commodore’s decision not to split his empire proved right. Over the next 9 years, William H. doubled his father’s fortune to nearly $200 million through proper management of the railroad business. After adjusting for inflation, the $200 million Vanderbilt fortune would be worth roughly $5 billion in 2017 dollars.

However, William H.’s death in late 1885 would cultivate the seeds of folly that would lead to the fall of House Vanderbilt. Within 20 years no Vanderbilt would be among the richest people in America, and:

When 120 of the Commodore’s descendants gathered at Vanderbilt University in 1973 for the first family reunion, there was not a millionaire among them.
This is the story told in Fortune’s Children: The Fall of House Vanderbilt. Before I finish this story, I want to highlight a saying popularized by the great Charlie Munger, Warren Buffett’s long time business partner:

Invert, always invert.
Originally formulated by the German mathematician Carl Jacobi, the idea was to solve a problem backwards rather than forwards. So rather than asking, “What’s the best way to keep wealth?”, we should ask ourselves, “What’s the best way to lose wealth?” In the Vanderbilt story we have our answer. So without further ado, I present a step-by-step guide on how to lose a fortune: